Carbon Capture And Storage: No Magic Bullet ─ But Requires Policy And Funding To Reach Necessary Scale
By: Andrew Botterill, National Leader of Oil and Gas for Deloitte Canada
It’s no secret that Canada’s current emissions reduction techniques are not enough to reach its 2030 milestones on our path to a 1.5 C climate target1. While progress has been made — Canada reduced its total GHG emissions by 8.9 per cent from 2019 to 20222 — and industrial emitters continue to explore investments that will ultimately help Canada reach its decarbonizations goals, the solutions required will involve projects with a size, scale, and degree of risk that no individual company could be expected to undertake alone.
As a result, organizations are feeling the financial pressure to make investments to meet their 2030 and 2050 goals, and major decarbonization projects are in danger of losing momentum. To address the gaps between today’s enacted policies and the current investment pace to meet climate targets, industries must employ carbon reduction and removal technologies in addition to emissions reduction and avoidance techniques.
CCUS ─ call to action
The International Energy Agency estimates that 15 per cent of the necessary reductions required must come from Carbon Capture, Utilization, and Storage (CCUS) technologies to achieve the stated targets. CCUS can receive criticism as if the application will exist in a vacuum, instead of operating alongside other technologies and solutions built to curb emissions. In addition, criticism has been lobbed at the near-term effectiveness and cost of the solution, but the technology has not had the opportunity to reach its full size and scale.
The truth is, while CCUS has been in commercial deployment for decades, the storage market, along with the funding to scale and increase the adoption and competitiveness of the technology has been absent. Only by removing the barriers facing CCUS, such as commercial uncertainty, market volatility, and prolonged regulatory processes, and ensuring the technology receives the time and funding needed to increase adoption and scale, can we realize its true potential.
According to the UN Intergovernmental Panel on Climate Change (IPCC), every scenario that keeps the planet from exceeding 1.5 C requires the large-scale removal of carbon from the atmosphere3. Here in Canada, we have the geological capacity for storage that other global jurisdictions do not, but very little investment has been announced to date. Ongoing CCUS initiatives, like the Pathways Alliance, are at risk if substantial government investments and tax supports aren’t cemented, clarified, and competitively positioned.
Sharing the risk of CCUS
At Deloitte, we work with industries to understand technology adoption and scaling and to identify business models that promote collaboration and benefits for all parties involved. At a global level, we also work to educate industries and government on the use cases of CCUS technologies, and provide recommendations for investors, emitters, value chain stakeholders, and regulators in support of reaching climate goals.
Deloitte is actively in the market supporting clients on understanding market demand and adoption considerations for the global deployment of CCUS solutions. Deloitte expects increased focus on CCUS business models, such as Operatorship, CCUS-as-a-service, and Ecosystem Emitter, which are foundational to enabling companies to transition and implement successful CCUS projects and share risk — both financial and carbon.
Historically, the CCUS business model has been treated as a lone wolf model where an energy company bears the entire capital burden and risk all the way from implementing the capture technology, transportation requirements, and storage of the product. But the landscape has been changing rapidly to include many different business models where companies partner and participate in a multitude of ways.
Canada can lead the way
Canada is in a position to lead when it comes to CCUS, as it is one of the first movers in developing and implementing the technology with enhanced ability to scale by leveraging our natural opportunity and embracing the hub model. With one hub-like asset currently operational (Alberta Carbon Trunk Line) and another approximately 25 hubs planned for potential development, primarily in Alberta4, Canada is also set to receive US$235 million over seven years for CCUS innovation and US$2.2 billion over the next five years to fund decarbonization initiatives5.
To further strengthen the foundation in the near-term, and ensure Canada remains in a position to meet its targets and lead in decarbonization on the world stage, further incentives are required to encourage companies to adopt, invest, and deploy capital to CCUS technologies. Especially in the wake of the Inflation Reduction Act (IRA), Canada must ensure it has investment tax credits in place for both production and operating costs to lure investors to Canada, provide cash flow certainty, and remove at least some market volatility risk from CCUS business cases.
Additionally, investors, emitters, value chain players, and regulators must focus on closing the funding gap to support the development of CCUS technology, break down ecosystem barriers to increase value chain collaboration, develop a market for low-carbon products and services, and foster a flexible and individual market for CO2.
CCUS is not a magic bullet for achieving Canada’s emissions reductions targets, but if the conditions to achieve its necessary scale are fostered, the technology will inevitably make up an integral part of a host of decarbonization solutions. Until then, the true size, scale, and impact of this technology remains to be discovered.
About Deloitte Canada:
Deloitte provides audit and assurance, consulting, financial advisory, risk advisory, tax, and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and service to address clients' most complex business challenges. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Our global Purpose is making an impact that matters. At Deloitte Canada, that translates into building a better future by accelerating and expanding access to knowledge. We believe we can achieve this Purpose by living our shared values to lead the way, serve with integrity, take care of each other, foster inclusion, and collaborate for measurable impact.
To learn more about Deloitte's approximately 330,000 professionals, over 11,000 of whom are part of the Canadian firm, please connect with us on LinkedIn, Twitter, Instagram, or Facebook.